3-Step Guide: I Want To Invest. But How?

I have been receiving feedback from friends that although they KNOW they benefits and importance of investing, they do not know exactly HOW to begin! As such, this article is a guide, from cradle-to-grave, on how to begin investing, the things that you need to prepare before you can even click on that ‘Buy’ stock button.

This is where you begin. There are primarily two forms that you will need to fill up, one for setting up a brokerage account and the other, a CDP account.

What is brokerage account and why do I need it?

A brokerage account is an arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage, which then carries out the transactions on the investor’s behalf. Simply put, you can’t do it yourself except through a brokerage firm. Here is a list of companies that are licensed brokerage firms that Singaporeans can go to to open up their brokerage accounts.

You would have identified some familiar names by now. DBS, OCBC, UOB, CIMB & Maybank. Yes, these are the respective banks’ subsidiary for investment-related business. So if you want to start an account, the easiest way would be to choose the bank that you are using! In terms of fees, it’s pretty much the same across the board. The differences between the different brokerage firms would likely be found in their platform and the services they offer. Our suggestion would be to just stick to the bank that you use.

Although online forms are readily available, we highly recommend that you head down to your nearest bank branch or the investor centres of the respective banks to get your paperwork done. Firstly, there’s a lot of papers to print, and secondly, there may be things like ‘W-8Ben Form’ that you have NO IDEA what it is and it is still better that someone experienced is sitting next to you, telling you what to fill up and where to sign. 🙂

If you choose the recommended way and head down to your nearest bank to fill up the forms, then you would probably fill up your CDP Account Opening Form there as well. So to shed a little light on why you need a CDP Account as well, I will elaborate!

CDP stands for Central Depository (Pte) Ltd. CDP securities account is for the settlement of trades. It maintains all the shares you’ll buy on SGX, and electronically records the movements of the shares in and out of your account as you buy and sell them. The brokerage account that you opened with your brokerage firm allows you to trade shares in the stock market. Both these accounts have to be linked before you can start trading.

While you can have only one CDP securities account, you are free to open brokerage accounts with multiple stockbroking houses.

While you can start investing with a couple of hundreds of dollars, we do not recommend it for 2 reasons. Firstly, if you only have a few hundred dollars for investment, we feel that financially you may not be prepared to take a loss. In this case, you should focus greatly on learning how to save effectively first. Until you have secured your ability to save well, then look into investing the savings. (Recommended: Timeless Guide To Fattening Your Wallet)

Secondly, if you only have a couple of hundreds for investment, we recommend that you do not jump into buying stocks at once. How do you know which companies are good and which are considered cheap or expensive? Although you don’t have to use all your savings to gain an education, we recommend that you spend some on books such as Teh Hooi Ling’s Show Me The Money Series. While you can’t avoid losses, you can prevent them with the right knowledge! If you want to invest, you need to read. It will be habitual in time, because the more you know, the better judgement you make and good judgement means avoiding losses or making money.

Back to the point, “How much money do I need?” It’s funny how everyone asks this question, but I realise the amount comes to you naturally. It differs from investor to investor, but that number will come to you – A number that you are comfortable trying out with. In the same way, you don’t jump into the sea with both feet to learn how to swim! Don’t develop a unnecessary phobia for the wrong reasons! Investing is a life-long skill that has put many in a comfortable financial situation and it could for you too.

Three things: The mind, the heart, and the stomach. Investing is a wholesome activity. Having skills alone isn’t going to bring you very far as compared to having the three essentials mentioned above.

First you need to condition your mind. Are you in for the long term or the short term? It’s not uncommon to see a trader place a short term position and changing his mind to make it a long term position when the trade goes against him. Investing however, requires time and this usually mean holding a position for years to see its value unlock. So the first question is, “Do I have the investor mindset?”

Second, the heart. You must know why are you investing. What is your purpose and how do you want to achieve this purpose. There are many reasons why people invest. To some, it’s merely for that side income. To others, it’s an insurance against a lost of job thus having to create another source of cashflow through dividend investing. To another group of people, it’s their main source of income. Although the purpose is all to make money, the amount of risk you assume could be very different. So, what is your purpose?

And lastly, the stomach. While your research and analysis may be spot on, others may not be able to see the same value that you are seeing in the company. The company might be worth $5 according to your research and it’s currently priced at $2. A very good investment indeed. But perhaps only you had that foresight while the stock price drops from $2 to $1.50. When you think it couldn’t go any lower, and buy more of it’s shares, it slumps further to $1. No one knows how long it’ll ever take to get to $5, but can you stomach that loss in the meantime before calling it quits? That’s why the ability to stomach a mispricing is just as important as having the ability to analyse a company.

Now you’re equipped with the knowledge, so go and take action! Head to your nearest bank to set up your brokerage account if you haven’t done so and are intending to do so! After which, you can enhance your learning through our website. Allow me the opportunity to take this chance to highlight the different segments our website has to aid you in your investment endeavor. 😉

You’ve had your accounts set-up, what’s next? Hundreds of stocks flashing before your eyes trying to grab your attention, but which ones should you focus on? In our Analysis (click it!) segment, we have full and complete write-up of different companies for you to consider!

You’ll start seeing things like P/E Ratio, ROA, ROE. What are they? Fear not! We have a built-in Financial Library in our website! We are dedicated to your financial education, so feel free to check those ratios out! We bet you’ll learn a thing or two from our Financial Library!

Want to become a better steward of money? Tips and tricks on how to become a better saver or investor can be found under Personal Finance

I got a personal question I want to ask! Got a question? We have a section called #AskTLS where we answer your specific question!

Aloysius Lee

Aloysius has been investing in Singapore Equities from the age of 18 and is still madly enthusiastic about it. He strives to sharpen his edge while guiding others along the way to snowball their way to financial freedom!